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Budget & Tax

Ray Carter | June 15, 2023

State land trust costing schools millions, report says

Ray Carter

Since statehood, Oklahoma government has maintained land in trust to support education through lease revenues and investments. The idea was that the Commissioners of the Land Office (CLO) would provide an ongoing and stable source of revenue to state schools.

But a new report by the Legislative Office of Fiscal Transparency (LOFT) finds that system is actually costing Oklahoma schools millions of dollars, and state schools could receive up to $53 million more per year if the state sold the land held by in trust by the Commissioners of the Land Office and invested the resulting revenue.

“Based on the 10-year average rate of return of CLO-held securities, investment of the liquidated assets would generate approximately $82.4 million annually in additional interest earnings,” the LOFT report stated. “Interest earnings are distributable income. In 2022, the CLO distributed a total of $122.5 million to education beneficiaries. Accounting for the foregone revenue of $30 million currently generated from rental income from leased land, liquidation would increase the distribution total to $176 million annually.” (Emphasis in original.)

The Commissioners of the Land Office is a five-person body composed of elected and appointed state officials who oversee the trust and its investments. The CLO currently manages 750,000 surface acres and 1.2 million mineral acres in addition to the trust’s financial holdings.

LOFT officials noted that the surface acres held by Commissioners of the Land Office may produce lease revenue that is distributed to schools, but those holdings also deprive schools of local property tax revenue since the properties are exempt from that tax.

“While the property holding may yield a positive impact on CLO’s fund, it has a negative impact on counties, county health departments, career technology centers, and in some instances school districts, through reduced tax revenue,” the LOFT report stated.

LOFT officials noted that in Cimarron County, where the Commissioners of the Land Office owns one-fifth of all agricultural land, the two school districts in the county—Boise City and Felt—would receive approximately $1.56 million more in annual funding than they receive each year from CLO distributions if the land were generating property tax revenue.

In the 2022 state budget year, the Commissioners of the Land Office distributed just $45,928 to Boise City and $11,196 to Felt.

Because the CLO lands are all in the western half of Oklahoma, the current system also takes land off property tax rolls in western Oklahoma but distributes the associated revenue to all districts. That means many western Oklahoma districts may be experiencing a net loss in revenue, or a wash, rather than gaining revenue under the system.

“Districts in the western half of the state receive the same distribution from CLO as those in the eastern half, but the western districts lose ad valorem revenue while the eastern districts do not,” the LOFT report stated.

The 751,000 acres held by the Commissioners of the Land Office on behalf of trust beneficiaries have an estimated value of $1.6 billion, and the LOFT report noted that figure “likely underrepresents the present-day value of the land because CLO only appraises lands once they are ready to auction them for lease or sale, so many of the appraisals are years or decades old.”

LOFT officials recommended that the 751,000 acres be gradually sold and the resulting revenue invested to generate greater returns for schools.

“LOFT projects that if CLO were to remove real estate from its assets, it would create a net benefit to educational distributions,” the report said.

LOFT officials conservatively estimated that replacing surface holdings with securities would forgo $30 million in lease revenue but replace it with $82.4 million in interest and dividend revenue each year.

In a June 5 letter of response included in the report, the Commissioners of the Land Office claimed that “local tax collections would not increase with the sale of public lands,” and said the millage rates for existing landowners might instead be reduced.

“The LOFT Report states, without evidence or analysis, that removing real estate investments from CLO would likely increase the amount of annual income distributed to public education,” the Commissioners of the Land Office letter stated (emphasis in original). “Prior, but somewhat dated, studies on a similar proposal found the opposite to be true.”

The CLO said studies from 1967, 1971, 1980, 1984, 1985, 1987, 1991, 1992 and 1993 showed that selling land held in the trust would not generate enough new investment earnings to offset the loss of lease revenue.

“The LOFT Report articulates no compelling reason for divestiture of real property other than a wishful notion that market investments will perform better than real estate over time,” the Commissioners of the Land Office response stated.

In a June 8 response to the CLO’s response, LOFT said it is undeniable that “increasing the taxable property within the bounds of a particular taxing district would generate additional tax revenue,” and said the CLO’s claim that local tax collections would not increase with the sale of public lands is “false.”

“The overall taxes collected are based on the amount of taxable land,” LOFT officials stated. “When untaxed land, such as that held by CLO, is added to the tax rolls, there is a net positive impact. Conversely, when the land is not taxable, there is a negative impact to local tax collections.”

LOFT also noted that the prior research cited by the Commissioners of the Land Office is at least three decades old.

“The prior ‘Staff Analysis’ cited by CLO, which was conducted 30 years ago, found that the yearly lease rentals at that time yielded a higher annual value than private market sales,” LOFT officials said. “Since that time, the fair market value of land has increased to a level to where that is no longer the case.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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